Banks to dig deeper into their pockets in new licensing plan

Central Bank Of Kenya on Haile Selassie Avenue in Nairobi. [Wilberforce Okwiri, Standard]

The cash-strapped Kenya Kwanza administration has devised new plans to increase its revenue from the country’s cash-rich lenders, which would result in commercial banks and microfinance institutions in the country paying higher regulatory fees.

The financial institutions in the country will pay higher regulatory fees if the fresh plot by the government to net more revenue from the cash-rich lenders is successful.

Treasury has also revealed that President William Ruto’s government is mulling increasing mandatory capital requirements for wealthy lenders in a fresh shocker for banks currently set at a minimum of Sh1 billion.

The Ruto government reckons the duo moves will help “strengthen the resilience of the financial system.”

“As part of the process, the Central Bank of Kenya (CBK) is currently reviewing the licensing fees for commercial banks. The licencing fees for commercial banks were last reviewed in 1990. This was based on the number of branches that a bank has,” said Treasury last week without disclosing the proposed new licence fee.

Treasury said a new regime will incorporate factors such as the fact that the banking sector has transformed significantly since 1990 with technology and innovations and moved towards branchless banking.

“For this reason, the review will consider, among other things: the changing banking sector landscape, increased supervisory or surveillance costs, and international best practice,” said Treasury.

It added that to further strengthen the banking sector’s resilience and increase commercial banks’ capacity to finance large projects, the CBK will review the minimum capital requirements for commercial banks.

“The current minimum capital requirement of Sh1 billion for commercial banks has been in effect since 2012,” said Treasury.

“The banking sector has been transformed since 2012, growing from an asset base of Sh2.3 trillion to over Sh7 trillion.” “The banking sector’s risk profile has also changed in the last 10 years with growing prominence of among others, cyber security risk, cross border risk and climate-related risks.” The planned new levies come at a time when the Kenya Kwanza government has shown a strong interest in implementing new tax increases rattling its support base and various corporate sectors. 

The Ruto government has implemented a set of contentious taxes, including a 100 per cent increase in value-added tax on fuel to 16 per cent, and the implementation of a 1.5 per cent surcharge to finance the construction of affordable housing. The government anticipates that these measures will generate an additional Sh200 billion annually.

Commercial banks in Kenya have over the years maintained their position among Kenya’s top tax generators, handing the taxman more than a third of all corporate taxes paid in the year to December 2022 for instance.

An earlier report showed corporate taxes paid to the Kenya Revenue Authority (KRA) jumped 77 per cent to Sh87.71 billion compared to a year earlier when the sector’s taxes were Sh49.48 billion.

The contribution represented more than a third of the total corporate taxes received by KRA, cementing the lenders as a cash cow even as other sectors experienced a slowdown.

Local companies are required to pay 30 per cent of their profits as corporate taxes.

Overall, the banking industry contributed Sh181.27 billion in corporate, employment and other taxes accruing from day-to-day operations such as excise duty on transaction fees in the year under review.